The NAR settlement is an “earthquake” for the real estate industry

In the wake of the settlement agreement reached by the National Association of Realtors (NAR), which paid $418 million over brokers' commission practices, Lance Lambert, co-founder and CEO of ResiClub, joined Yahoo Finance Live to discuss the implications for the real estate industry.

Lambert calls the settlement an “earthquake” for the industry, explaining that in the traditional home buying process, the seller paid a 6% commission that was then distributed to the agents involved. However, as a result of this lawsuit, Lambert believes the primary beneficiaries “may be sellers” who will likely no longer have to cover agents’ commission rates.

Additionally, Lambert notes that this settlement exposes the “deterioration” of housing affordability, which has reached its worst levels over the past four decades, forcing individuals into stressful situations. He argues that this pressure creates “public resistance” and highlights the need for change within the industry.

For more expert insights and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's Note: This article was written by Angel Smith

Video version

Julie Heyman: Manage the implications of this real estate commission settlement and bring in ResiClub co-founder and CEO Lance Lambert Lance, I think we're all trying to understand what this is going to mean here. Can you explain here, from your perspective, what the big changes this settlement will bring to the home buying process?

Lance Lambert: Yes. So this is an earthquake for the industry. You know, historically, how it's been in the United States for a long time is that the total commission was about 6%, in a lot of markets, 3% would go to the buyer's agent, 3% might be to the seller. It varies according to the market. But usually the seller would pay it. It was accepted that this was the way the process worked. Now going forward with it not being in the MLS and it's going to be negotiated further, I think there's potential here that, you know, the total commission pie could be reduced. I think the winners might be the sellers who might get rid of paying the buyer's agent costs and pick up that lot from them.

The story continues

JULIE HYMAN: Lance, can I — can I just ask you real quick —

Lance Lambert: [INAUDIBLE]

– Can I ask you for a quick follow-up on this?

Lance Lambert: [INAUDIBLE] There may be. Yes.

Julie Heyman: Yes. Why–why was it regulated that the sellers paid the full fees?

LANCE LAMPERT: Well, that's– the thinking is that anyone who was selling was also on the other side of it, buying. right? So, if you're on the sell side and paying both, yeah, that's probably bad. But when you entered the market, you didn't pay for it, right? So that was kind of how the process went.

And it's one of those things that, once it becomes part of the system, it kind of gets stuck. And now we'll see, you know, how sticky it really is. We will likely see the total commission pie decline. That's why I think a lot of these stocks, like Zillow, are down, and Compass is down today. Market type of pricing. But it will take some time to be implemented, and there will likely be more lawsuits.

But the big takeaway here is that housing affordability has deteriorated to levels not seen in about four decades. This is the worst housing affordability since the early 1980s when mortgage rates were 18%. And yes, 7% mortgage rates may not seem that bad. But when you take into account how much – you take into account how much rates have risen and then incomes haven't kept up, this shock of the mortgage rate going from 3 to 7 has really stressed it. So the effect of that with so much pressure on affordability is that people feel stressed.

And that pressure on affordability creates things like this, where there's more pressure to cut commissions. There is more local pressure against Airbnbs. There's more — you know — that will flow into the political system as well. And you do see a lot of talk against institutional homebuyers and different parts of housing just because affordability has become so strained that — naturally there's going to be public opposition. And, you know, I think some people in the industry are kind of affected by this.

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